Ensure Success in Natural Gas Hedging: Use Statistical Models |
Posted: April 18, 2019 |
Companies that are assiduously involved in commodity transactions like natural gas and crude oil (the most actively traded commodities across the world), must have a proper hedging strategy that helps them to mitigate their price risk. A hedging strategy allows these companies to avoid unfavorable pricing conditions that can arise as a result of market movement and volatility. Hedging Strategy Is a Key Component of Risk Management Natural gas, crude oil and other refined petroleum products, such as gasoline, diesel, and fuel oil are some of the most VOLATILE commodities. In these markets, extreme price fluctuations are a common occurrence. This volatility can adversely affect the bottom line of companies. So, crude oil & natural gas hedging for long months and even years is necessary to help create a level of protection for a company’s prosperousness. To say the least, risk management requires hard work, diligent planning, and implementation of a well thought out and coordinated a hedging strategy that is based on a statistical hedging program. Statistical Models for Hedging Help Make Educated and Timely Decisions The right decision with respect to timing and placement of natural gas hedges, by and large, rely on a company’s goals and risk appetite. Therefore, setting up a hedging strategy that relies upon a statistical model is a wise decision. With this information, energy producers and consumers can obtain statistically analyzed data to help figure the energy market’s price cycles more thoroughly. Also, the model they use provides them the assuredness of making the right decisions related to the timing of hedges, the right maturity to use, and the best derivates to meet their goals. Technical & Statistical Analysis of Energy Commodities Are Realistic Methods Companies that make use of or produce energy commodities like crude and natural gas require a suitable energy hedging plan to handle the challenges presented by the volatile energy commodities markets. They, along with the risk managers, rely on technical analysis and statistical analysis so that they can make a sound judgment of their risk exposure. The best use of technical and statistical analysis is that it allows energy risk managers to identify market cycles and when to hedge. Moreover, it allows them to identify the right exposure to hedge, the right instruments to use, and the right time to remove or restructure hedges. In this manner, using technical and statistical analysis, a company is able to meet their risk management goals based on their unique risk appetite. Getting Help of Professionals Is a Good Idea Getting the help of the professionals can be a good decision because they will help you create hedging strategies to mitigate risks posed by the volatile energy markets. They will help create a sound risk management strategy that will feature decision models to allow you to execute your hedges during extreme volatility; and bring balance in risks versus rewards, etc. They will create energy price risk management plans using a statistical approach by studying historical data and all information discounted on charts about what markets say about themselves. Conclusion When hedging for the long-term, scaling into the hedges should be a top priority to minimize your risks. Moreover, using statistical models you will be able to take the right decision. Last but not least, by using these models you will be able to create a hedging strategy that meets your company’s unique risk management goals and risk appetite. Overall, when it comes to ensuring success in natural gas hedging, the key is to choose the right statistical model.
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